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Exam 13: Capital Budgeting Decisions

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Question 51

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In comparing two investment alternatives,the difference between the net present values of the two alternatives obtained using the total cost approach will be the same as the net present value obtained using the incremental cost approach.

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Question 52

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A planned factory expansion project has an estimated initial cost of $800,000.Using a discount rate of 20%,the present value of future cost savings from the expansion is $843,000.To yield exactly a 20% internal rate of return,the actual investment cost cannot exceed the $800,000 estimate by more than which of the following? (Ignore income taxes in this problem. )

A) $1,075.
B) $20,000.
C) $43,000.
D) $160,000.

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Question 53

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(Appendix 13B)The release of working capital at the end of an investment project is a taxable cash inflow.

(Appendix 13A) What is the approximate effective cost now of the working capital component of the investment decision? (Do not round your intermediate calculations and round your final answer to the nearest whole number. )

What is the total cash outlay needed to be made now?

(Appendix 13A) The following data pertain to an investment: What is the net present value of the proposed investment? (Ignore income taxes in this problem. ) (Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

The net present value method takes into account which of the following?

The Jason Company is considering the purchase of a machine that will increase revenues by $32,000 each year.Cash outflows for operating this machine will be $6,000 each year.The cost of the machine is $65,000.It is expected to have a useful life of five years with no salvage value.For this machine,what is the simple rate of return? (Ignore income taxes in this problem. )

Information on four investment proposals is given below: What are preference rankings of the four proposals according to the profitability index?

(Appendix 13A and 13B) A company anticipates a tax-deductible cash expense of $10,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 8%.What is the approximate present value of this future cash outflow? Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

(Appendix 13B) The capital cost allowance (CCA) tax shield of a Class 7 asset with a maximum 15% CCA rate was $12,000 for Year 2.The income tax rate was 40%.What was the total CCA deduction for the asset for Year 2?

(Appendix 13A) The net present value of project Y is closest to which of the following? (Do not round your intermediate calculations. )

(Appendix 13B) What is the value of the incremental UCC (the "C" in the PV CCA formula) used in the calculation for the present value of CCA tax savings?

(Appendix 13A) The following data pertain to an investment proposal: What is the net present value of the proposed investment? (Ignore income taxes in this problem. ) (Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

(Appendix 13A and 13B) What was the present value of the tax savings from the CCA tax shield in year 3 to the nearest dollar?

(Appendix 13A and 13B) A company anticipates a capital cost allowance (CCA) deduction of $20,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 12%.What is the approximate present value of the CCA tax shield resulting from this deduction? (Do not round your intermediate calculations and round the final answer to the nearest whole dollar. )

(Appendix 13A) The net present value of this investment is closest to which of the following? Do not round your intermediate calculations. )

(Appendix 13A)The present value of a cash flow decreases as it moves further into the future.

The simple rate of return on the investment is closest to which of the following?

What would be the immediate cash outflow required for this project?